Download PRINCIPLES 2010

Article 5.2.5 (Revocation)

The parties may modify or revoke the rights conferred by the contract on the beneficiary until the beneficiary has accepted them or reasonably acted in reliance on them.

COMMENT

It might be the rule that the promisor and promisee are free to revoke the third party’s rights at any time or, contrariwise, that the third party’s rights are immutable once the contract is concluded. It appears that few systems adopt either of these extreme positions. The solution adopted is that the third party’s rights become irrevocable once the third party has either accepted the rights or has reasonably acted in reliance on them. It will, of course, be open to the parties to provide for a different regime in the contract either by making the beneficiary’s rights irrevocable sooner, or by preserving a right of revocation even after the beneficiary has acted in reliance on the rights. There may well be situations where a right of revocation is given only to one party. For example, in a contract of life insurance it might be provided that the insured can change the beneficiary. There might be relevant usages which limit the possibility of revocation.

Illustration

A, the main contractor on a major construction contract, takes out a policy of insurance with insurance company B to cover damage to the work in progress. The policy is expressed to cover the interests of all sub-contractors involved in the contract and the sub-contractors are all told of the policy. C, a sub-contractor, does not take out any insurance itself, but does not tell A or B. Absent clear words to the contrary, C's reliance makes the contract between A and B irrevocable.